Wanted: A Free Accounting Application for Non-Profits

Non-Profit Accounting Software

By

Bruce Byfield

The Software Freedom Conservancy is raising funds to fill a major gap in free software functionality.

Just because Bradley M. Kuhn is executive director of the Software Freedom Conservancy doesn’t mean he is exempt from grunt work. As one of only three permanent staff members, Kuhn is used to doing all sorts of unexpected tasks – including keeping the Conservancy’s books.

Consequently, when he states that free software lacks accounting software that can answer the requirements of non-profit organizations (NPOs), you can be sure he knows what he is talking about and that there is a real need for the Conservancy’s current campaign to hire a developer to take the first steps toward building such an application.

Founded in 2006, the Conservancy is an NPO that provides services for more than 30 free and open source software projects, including Amarok, BusyBox, Git, Inkscape, and Samba. Its officers and directors include Jeremy Allison, Karen Sandler, and Peter Brown, who, like Kuhn, is a former executive director of the Free Software Foundation.

The Conservancy exists to provide a range of services that allow developers to concentrate on writing code. As Kuhn describes these services, they might include “basically anything you can think of,” ranging from organizing conferences, providing legal help, and managing financial affairs – “the whole [gamut] of what a non-profit might do.” As a 501(c) charity, most of its expertise is in American NPOs because, unlike copyright law, there is no internationalization harmonization of non-profit law.

According to Kuhn, the lack of free accounting software affects mostly small to medium-sized NPOs. Large NPOs “have a really expensive software package from some big proprietary software vendor. They pay a lot in licensing fees every year, but it’s not a big piece of their budget. They live with it, and it more or less works for them.”

By contrast, “at the small and medium level, they’re stuck with QuickBooks. We have pretty good evidence that [the NPOs’] auditors are telling them, ‘What you’re doing here is not so good, and you’ve got to change this and you’ve got to change that.’”

Many NPOs, like Fractured Atlas, which provides services to theaters and artists, have built their own private account systems. At the Software Freedom Conservancy, Kuhn relies on Ledger and a series of reporting scripts. However, he admits that this solution is more likely to appeal to “old Unix geeks” like himself than to accountants – “and most developers don’t want to become bookkeepers. The whole point is to allow the geeks to focus on writing code rather than administration – even though doing accounting from the command line and Emacs is a pretty geeky thing to attempt.”

Problems in Need of Solutions

However, neither cost nor makeshift solutions are the only problems. Although Kuhn has tallied at least 30 free software accounting programs, in his estimation, most of them have solved “the 80% easy part of building an accounting system for a business, [but] the 20% of problems that non-profits have, haven’t been looked at.”

One of those problems is temporarily restricted assets. For example, the Conservancy keeps track of money donated to each member; if a member quits the Conservancy, it is under written obligation to hand over the member’s assets within 60 days. Yet, to the American Internal Revenue Service, “we’re just one org that has a lot of what, in charity-speak, is called programs,” Kuhn says. “What you really need is to have a separable accounting structure in which you can excise one program completely out of your accounting system and keep going.”

The problem is that NPOs have to submit a public accounting of their income and expenditures. In the United States, this is Form 990, and what it basically means is “there are certain types of information you have to track in your accounting system that for-profit organizations don’t have to – things like which program activity something went to or whether or not specific items have to go into specific boxes” on the report. The solution is not difficult – Kuhn solved the Conservancy’s needs by creating a series of tags for items that can be picked up for a report – but the point is that the functionality is not pre-existing in most accounting software.

Yet another problem is what is known as accrue accounting, or the recording of assets that have been promised but not yet received. Accrued assets are supposed to be on a “good-faith basis” – meaning you have an honest belief that you will actually receive those assets at some point. With this assumption, in most accounting programs, when you create an invoice, an accrual entry is automatically generated.

The trouble is, during fundraising, charities frequently send off invoices that they have no reason to believe the recipient will ever pay. “Often they don’t,” Kuhn says, “because they decide not to give, or someone who was really excited about giving a donation [finds that] their boss says no.” Such circumstances do not exist in standard accounting but are routine in charities.

The Grand Project

The Conservancy’s solution is to raise funds to hire one developer for a year to hammer out a solution. “Development will be done in public, the conversations will be done in public, and we’re going to welcome all comers who have input,” Kuhn says.

Once the money is raised, the first task will be to produce and publish a detailed comparison of existing free accounting software. “We don’t want to reinvent the wheel,” Kuhn explains, adding, “I’m a real believer in code re-use.”

As might be expected, Kuhn himself favors Ledger, with his scripts as a basis for the new software. However, his own role will be purely administrative, and he emphasizes the value of accessing all the possibilities before making a decision.

When the first phase is complete, the second will be to produce a basic application suitable for use by American NPOs. This application will include basic features for managing accounts payable and accounts receivable, reconciling bank statements, and producing reports in preparation for an annual audit. Kuhn describes this second phrases as the “airline video analogy,” saying, “I want to get our oxygen mask on first, then fix other people’s.”

What code will be re-used and whether the new software will be a web application so it can be cross-platform are decisions that will only be made during the project. However, Kuhn says, “I have an acid test to decide if we’ve been successful after the first year: if I can bring in a bookkeeper for the Conservancy and hand them the system and say, ‘Keep the books in this system,’ and they feel comfortable doing it. It will be a little different from what they’re used to because it’s not going to be QuickBooks, but if their problems are minimal, and they say, ‘I can keep the books in this; this all looks normal and I can handle it,’ that’s the real acid test.”

After that, the project will start to look at the needs of NPOs elsewhere, although Kuhn hopes developers in other countries will keep an eye on the first two phases so that no code is written that would prevent their needs from being met later on.

Raising Funds Solo

Kuhn says he was inspired to attempt the fundraising campaign after seeing MedaGoblin’s relatively successful campaign administered by the Free Software Foundation.

However, despite the fact that Kuhn is one of the Free Software Foundation’s directors, he decided not to seek its help on the grounds that the need for the project goes far beyond free software circles. Similarly, he decided against hosting the campaign on Kickstarter or another crowdfunding site because of the 5%-10% service charge most demand.

“I’m not a fan of this crowdsource funding meme,” he says. “There’s a certain fadness to all of it. Crowdsource funding is something that NPOs have always done. As a service to our donors, I want to take the money we raise and put as much of it to work as possible. Obviously, we’re paying credit card fees, all the kinds of expenses that anyone has to, to make money, [but] I’m always trying to run the org as leanly as possible. I want to eliminate that overhead because [NPO donors] hate overhead.” Besides, “I don’t think there are NPO folks sitting there on KickStarter looking for campaigns that might be helping non-profits.”

One way or the other, raising the target US$ 75,000 might be difficult. “There’s a certain I-gave-at-the-office mentality among free software developers that I don’t blame them for in the least. They feel, quite legitimately, that they’ve finagled their careers so that, in their full-time jobs, they can give back to the free software community. But my hope is to fund this primarily through individual donors. The NPO space, doing things for the public good, is what free software is all about,” Kuhn says.

If people don’t donate to the Conservancy’s campaign, he hopes they will consider donating elsewhere. After all, he adds, he donated to the MediaGoblin campaign –- “and I get paid a non-profit salary.”

Having raised nearly half his goal in less than three weeks, Kuhn is optimistic about the campaign being a success. In fact, he considers that optimism is one of his duties during the campaign. If the unthinkable happens, and the campaign falls short of its goal, then he’ll talk with the Conservancy’s directors about how else they might launch the project. Possibly, he’ll even re-consider using Kickstarter.

As for the widely held belief that accounting is boring, Kuhn is well aware that some developers might dismiss accounting software as uninteresting compared – for instance – with a hot new kernel feature. However, he urges anyone who feels this way to look again. “I’ve found some excitement in the project. There are some interesting problems there, but it’s tough to hire someone to do it. I hope that our donors can see that’s exactly why they have to give.”

The Swiss federal agency known as Schweizerische Fachstelle für Informationstechnologien (SFIB) or Centre suisse des technologies de l'information dans l'enseignement (CTIE) has studied the user licenses for Microsoft products in Swiss schools. The result is a warning against the licensing and a recommendation to use open source products.